1. Northern States Power Companies (NSP-MN & NSP-WI)
Transmission Customer Meeting
October 10, 2017
Rate Discussion: Attachment O, GG & MM

2. Legal Disclosure
This document contains certain statements that describe the NSP Companies management’s beliefs concerning future business conditions and prospects, growth opportunities and the outlook for the electric transmission industry
based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of Wherever possible, NSP Companies has identified these forward-looking statements by words such as “anticipates”, “believes”, “intends”, “estimates”, “expects”, “projects” and similar phrases. These forward-looking statements are based upon assumptions management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties which could cause actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements.

3. Meeting Purpose / Objective
The purpose of today’s meeting:
Present the projected Attachment O, GG and MM revenue requirements for the rates that will be effective January 1 through December 31, These revenue requirements were calculated using the NSP Companies Tariff templates using projected net revenue requirement and projected load.
Review the 2018 Attachment O, GG and MM formula rate calculation cost components relative to the 2017 calculations currently in effect.
The dates and schedules, and even the projects themselves, represent our best estimates for projects to be initiated and completed. Please be aware that many factors could alter those schedules, including regulatory approvals, construction resources, availability of materials, weather, and other unforeseen events.

4. Attachment O, GG & MM Formula Rate for 2018
Originally filed with MISO and posted on OASIS on August 31, 2017
MISO review of the Company’s:
Attachment O, GG, and MM with 2017 Actual Costs – In Process
Attachment O, GG and MM with 2018 Costs – In Process
The information currently on OASIS is incorporated in this presentation.

5. Attachment O Budgeted Rate Effective 1/1/2018
Based upon total Revenue Requirements Submitted to MISO
Annual Cost ($/kW/Yr) $
Network & P-to-P Rate ($/kW/Mo) $
Peak Rate
Off-Peak Rate
Point-To-Point Rate ($/kW/Wk) $ $
Point-To-Point Rate ($/kW/Day) $ $
Point-To-Point Rate ($/MWh) $ $
This is not the NSP Zone Rate. MISO calculates Zonal Rate.

6. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

7. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

8. Change in Operating Costs Detail
Operating costs in 2017 Rate $ 315.1M
Increase in depreciation $ 9.0M
Increase in O&M costs (Transmission and A&G) $ 6.3M
Increase in income taxes $ 5.6M
Increase in taxes other than income $ 3.7M
Net decrease in Operating Costs $ 24.6M
Operating costs in 2016 Rate $ 339.7M

9. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

10. Annual Revenue Requirement Determination Function of: Rate Base x
Weighted Cost of Capital

11. Change in Rate Base Total Rate Base – 2017 $2,609.6M
Net plant in service increase $ M
No change in CWIP $ M
Increase in accumulated deferred taxes $ (40.1M)
Increase in other working capital $ M
Net decrease in rate base $ 69.0M
Total Rate Base – $2,678.6M

12. Change in Cost of Capital
Weighted Cost of Capital
D/E Ratio Cost D/E Ratio Cost
LTD % % % %
Equity 53.6% 5.80% % %
7.92% %
2018 ROE = 10.82% (10.32% per Opinion Basis Point RTO Adder)

13. Reconciliation of Change in Return for 2018
Change in Rate Base $ 69.0M x 7.92% $ M
PY Rate base x decrease in WCC $2,609.6M x 0.01% $ M
Net change in return $ 5.7M
The increase in the return is driven by the increase in Rate Base for 2018.
Actual calculation performed on whole values

14. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

15. True-Up Calculation 2018 2017 Change Prior Year Annual True-up
ATRR Component $ (16.1M) $ (34.5M)
Divisor Component $ M $ M
Interest on True-up $ (1.1M) $ (1.3M)
Total $ (16.5M) $ (20.6M) $ 4.1M
2016 Actual Actual

16. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

17. Change in Net Revenue Credits
Revenue Credits Estimated in 2017 Rate $ (11.4M)
Higher Projected PTP Service $ (0.9M)
Higher Projected Transmission Rent $ (0.2M)
Increase in 2018 Revenue Credits $ (1.1M)
Revenue Credits Estimated in 2018 Rate $ (12.5M)
An increase in Revenue Credits will decrease the Attachment O Revenue Requirements

18. Comparison of 2018 Revenue Requirement to
Attachment O Net Revenue Requirement 2017 $355.0M
Cost Drivers in 2018:
Increase in Operating Costs $ 24.6M
Increase in Return Requirement $ M
Decrease in Annual True-up $ M
Increase in Revenue Credits $ (1.1M)
Increase in Attachment GG & MM Rev Req $ (12.2M)
Attachment O Net Revenue Requirement 2018 $376.1M

19. Attachment GG & MM revenue requirements are deducted from Attachment O
Components of Attachment GG & MM
Attachment GG Attachment MM
Rev Req for $ 79.0M $ 55.5M
Operating expenses (1) $ 10.9M $ 5.3M
Depreciation expense $ M $ 10.2M
Taxes other $ M $ 6.1M
Income taxes $ M $ 15.3M
Return $ 33.3M $ 30.7M
Rev Req for 2018 (Attachment O Deduct) $ 79.1M $ 67.6M
Increase 2018 versus 2017 $ 0.1M $ 12.1M $ 12.2M
Attachment GG & MM revenue requirements are deducted from Attachment O
revenue requirements
(1) Includes Common & General depreciation calculation

20. MTEP Projects Included in Attachment GG Calculation
The following RECB project costs were included in the Attachment GG:
In service
Cannon Falls (MTEP 1456)
Yankee (Colville) Station (MTEP 1366)
Ulik Wind (MTEP 2765)
St. Cloud – Sauk River (MTEP 1953)
Nobles Gen Station (MTEP 1457)
Upgrades for G349 (MTEP 1458)
Upgrades for G809 (MTEP 2109)
Upgrades for G417 (MTEP 2119)
Pleasant Valley-Byron (MTEP 2178)
10. Glenco-West Waconia (MTEP 1285)
11. MN Valley Kerkhoven (MTEP 3312)
12. Kohlman Lake Goose Lake (MTEP 3317)
13. Coudry Osprey (MTEP 3375)
14. Wilmarth Sub (MTEP 3104)
15. CAPX202-Bemidji-Grand Rapids 230Kv line (MTEP 279)
16. CAPX2020-Fargo- St. Cloud 345Kv line (MTEP 286)
17. CAPX2020-Rochester-Lacrosse 345Kv line (MTEP 1024)
18. GIP 826 Crandal (MTEP 9523)
CWIP
No CWIP included at this time; however the Company has authority to request CWIP in the formula rate.
Total project costs included in Attachment GG : $578.4M

21. MTEP Projects Included in Attachment MM Calculation
The following RECB project costs were included in the Attachment MM:
In service
CAPX2020-Brookings (MTEP 1203)
Big Stone – Brookings (MTEP 2221)
Lacrosse – Madison (MTEP 3127)
CWIP
No CWIP included at this time; however the Company has authority to request CWIP in the formula rate
Total project costs included in Attachment MM : $526.0M

22. Total Revenue Requirements Attachment GG & MM
2018 Annual Revenue Requirements $ 79.1M $ 67.6M
True-Up Adjustment $ (5.0M) $ 3.3M
Total 2018 MISO Billings $ 74.1M $ 70.9M
Attachment GG Attachment MM

23. Principal Rate Analyst
Questions?
Thank you all for attending today’s meeting
Contacts:
Carolyn M Wetterlin
Sr. RTO Manager
Thomas E Kramer
Principal Rate Analyst